2 Problems That Ford Needs to Fix in 2025

Core Viewpoint - Ford Motor Company has faced significant challenges in 2024, leading to a 35% decline in stock over the past decade, while the S&P 500 gained 186% [1] Group 1: Challenges in China - The Chinese government has heavily subsidized its electric vehicle (EV) industry, resulting in increased competition for foreign automakers like Ford [2] - This competition has led to a price war, pressuring foreign automakers who struggle to compete on price, particularly in the EV sector [3] - Analysts suggest that the Detroit Three, including Ford, should consider exiting the Chinese market due to its declining profitability compared to North America [4][5] Group 2: Warranty Costs and Recalls - Ford has experienced rising warranty costs, leading the U.S. industry in recalls for the past three years, with warranty costs increasing by $800 million in Q2 2024 to approximately$2 billion [6][7] - Warranty expenses have escalated from an average of 1.6% of revenue (2011-2019) to 2.9% since early 2022, exceeding 4% in Q2 2024 [8] - Management has indicated a focus on improving vehicle quality, but it will take time for these improvements to reflect in the vehicle mix and financials [8][9] Group 3: Investment Outlook - Despite the challenges, Ford's issues are seen as fixable, potentially offering a buying opportunity for investors after a 18% decline in stock compared to General Motors' 48% gain in 2024 [10] - Ford maintains a consistent dividend yield of 6.2%, which is unlikely to be cut unless drastic circumstances arise, but the dividend alone may not be sufficient to attract investors until major issues are addressed [11]